Wage Formation in the Nordic Countries Viewed from an International Perspective

Jackman, Richard

London School of Economics.

1988 (English)Report (Other academic)

Abstract [en]

The centralised wage setting insitutions of the Nordic economies have been associated with singularly successful macroeconomic performance in terms of securing high and stable levels of employment. This paper investigates the extent to which centrliased bargaining can contribute to maintaining full employment. For an economy operating in imperfectly competitive world markets, it is argued that the equilibrium unemployment rate will be lower under centralised than under decentralised wage bargaining, essentially because in a centralised wage bargain those concerned take into account the full social costs of unemployment, whereas under decentralised bargaining, an individual bargaining unit assumes that a large part of the cost of any unemployment resulting from its actions will be borne by other sectors. The paper goes on to consider the role of labout market policies, including accomodating public employment, special employment measures and their interaction with the unemployment benefit system. A tentative conclusion is that the scale and type of such policies is at least as important as the wage setting process in accounting for the low unemployment rates of the Nordic economies.